ADMS3530-Final-F07-Parts I & II-Sol

ADMS3530-Final-F07-Parts I & II-Sol - Name _Section...

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Page 1 Name _________________________ Section _____ ID # ______________________ (Prof. Alagurajah’s sections F and G; Prof. King’s section D; Prof. Li’s section A; Prof. Tahani’s sections C and E; Prof. Tissenbaum’s sections B and H) AK/ADMS 3530 Final Exam Fall 2007 December 10, 2007 7 -10 pm This exam consists of 50 multiple choice questions. 2 points each for a total of 100 points. Choose the response which best answers each question. Circle your answers below, and fill in your answers on the bubble sheet . Only the bubble sheet is used to determine your exam score . BE SURE TO BLACKEN THE BUBBLES CORRESPONDING TO YOUR STUDENT NUMBER. Please note the following eight points : 1) Please use your time efficiently and start with the questions that you are most comfortable with first. Remember : every question carries the same weight, so please do NOT spend too much time on one particular question; 2) Read the exam questions carefully; 3) Choose the answers that are closest to yours, because of possible rounding; 4) Keep at least 2 decimal places in your calculations and final answers, and at least 4 decimal places for interest rates; 5) Interest rates are annual unless otherwise stated; 6) Bonds pay semi-annual coupons unless otherwise stated; 7) Bonds have a par value (or face value) of $1,000; and 8) You may use the back of the exam paper as your scrap paper.
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Page 2 Part I 1. (Q. 3 in B) A perpetuity of $5,000 annually beginning today offers a 15% annual interest rate. What is its present value? A) $33,333.33 B) $37,681.16 C) $38,333.33 D) $65,217.39 Solution PV = $5,000 + ($5,000/0.15) = $5,000 + $33,333.33 = $38,333.33 2. (Q. 1 in B) What is the yield to maturity on a 10-year zero-coupon bond with a $1,000 face value selling now at $658? A) 4.2743% B) 5.1976% C) 6.5800% D) 51.9757% Solution %. 2743 . 4 1 658 $ 000 , 1 $ YTM 10 / 1 = = (You may also use your financial calculator). 3. (Q. 2 in B) A stock paying a $5 dividend next year sells now for $80 and has an expected rate of return of 14% annually. What will be the expected stock price one year from now? A) $82.20 B) $86.20 C) $87.20 D) $91.20 Solution . 20 . 86 $ 75 $ 20 . 11 $ 80 $ 80 $ 5 $ % 14 , return of rate Expected 1 1 1 0 0 1 1 = = + = + = P P P P P P D
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Page 3 Use the following information to answer Questions 4–5. Snowing Inc. is considering the following three projects. Its opportunity cost of capital is 8%. Project Initial Investment Cash Flow Year 1 Cash Flow Year 2 Cash Flow Year 3 Cash Flow Year 4 X -$3,000 $1,200 $1,000 $3,000 $0 Y -$1,000 $0 $1,200 $0 $1,000 Z -$5,000 $1,000 $1,000 $3,000 $2,000 4. (Q. 5 in B) Given that Snowing Inc. uses the payback rule with a cutoff period of 2 years, which project(s) would the firm choose? A) Project X only
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This note was uploaded on 04/11/2011 for the course ADMS 3530 taught by Professor Unknown during the Spring '09 term at York University.

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ADMS3530-Final-F07-Parts I & II-Sol - Name _Section...

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